.
As Russia gears up to celebrate the 70th anniversary of the Great Patriotic War (or as we call in the West, World War II) on May 9, Ukraine’s government seems intent on stirring the pot, with plans to complete the “de-communization” of Ukraine by the Victory Day deadline. The law passed by the Rada on April 9 outlaws communist symbols and elevates controversial anti-Soviet fighters to “national hero” status. What started off as an effort to banish undesired political opponents and bring down statues of Vladimir Lenin and other communist leaders, now appears to have turned into yet another witch-hunt that can only lead to further polarization.
While the Baltic states underwent a similar process of “de-Sovietization” following the fall of communism, including laws banning the use of Soviet symbols and prohibiting communist propaganda, Ukraine was a much more important component of the Soviet Union, with little evidence that the people of Ukraine harbored a similar hatred of the Soviet system as their Baltic counterparts. And with much bigger problems at hand including renewed fighting between government and rebel forces, an economy in free fall and persistent corruption, Ukraine’s people and international lenders may fail to understand why Kiev is “playing […] political games with Moscow” rather than implementing long overdue reforms to get the economy back on track.
A playground for the wealthy and corrupt
Over the past 24 years since its independence, Ukraine has made little progress in tackling “the iron triangle of oligarchic rule, corruption, and financial instability that has left [the country] mired in poverty”. Yanukovich’s leadership left Ukraine in tatters, with corruption eating up some 14% of GDP in the early 2000’s, or in other words approximately $30 billion a year. One of the underlying reasons for this mess is that the country has more often than not been a playground for the wealthy and corrupt. Accumulating their fortunes during the murky privatizations of the 90’s, these oligarchs have come to control large portions of Ukraine’s economy, some even estimating around 70%. What’s more, the Ukrainian oligarchic class has successfully welded itself in the legal framework and political class, often “buying” the loyalty of various ministers and local government officials.
While the IMF has pledged a $40 billion assistance package to Kiev, composed of $17.5 billion in loans and $15-20 billion write offs of previous ones, the Ukrainian government still has the daunting task of implementing economic reforms and battling with the country’s endemic corruption. But the Euromaidan changed the rules of the game, and the new government seems more determined than ever to bring about structural change.
US-born Natalie Jaresko, Ukraine’s Finance Minister, is one of a handful of foreigners brought into senior government positions in Ukraine, aimed at bringing in experienced technocrats “to reform the shambling, kleptocratic system” and help “achieve a clean break with a system long ‘captured’ by billionaire business oligarchs”. For her part, Ms. Jaresko used her recent trip to Washington to underline progress made by the new government, including the unveiling of a new policing system, tax rises for the wealthy, gradual reduction in payroll taxes and the implementation of a simplified tax system. Aivaras Abromavicius, the economy minister, was raised in Lithuania and has lived in Estonia, the US and Russia, and has been charged been deregulating the economy and shrinking the size of central government to crack down on a vast culture of bribery. His most recent piece of legislation cuts the number of procedures for registering a new business, in effect reducing the ability of inspectors to take bribes.
The case for “decentralization”
But will these piecemeal efforts be enough to create a modern and functioning Ukrainian nation on par with other European countries?
While the Russian government and self-proclaimed separatist leaders of the Donetsk and Luhansk republics have advocated for federalization of the region as a key demand to end the conflict, Petro Poroshenko has been quick to dismiss the option as an “infection” being forced upon Ukraine with the aim of creating a fragmented state. Rather, Poroshenko has expressed his support for “decentralization”, which would entail devolution of Kiev’s powers to local authorities and will be a key measure to ensuring Ukraine rids herself of the highly centralized system inherited from the Soviet era.
This system of the central government “micromanaging” local affairs has created a ballooning government bureaucracy, which in the absence of strong instructions and a system of checks and balances, “has nurtured a ruthless oligarch-politician class which has succeeded in exploiting public institutions to achieve private gain”. Decentralization would ensure that local leaders would be tasked with collecting taxes and allocating services based on the needs of their elected district, city, or town, and would mean that Kiev, no longer burdened by micromanaging a country of over 40 million, could cut down its vast administrative bureaucracy. The solution would make for a more effective and transparent form of government, with taxpayers’ money passing through fewer people and therefore limiting the widespread bribery and graft associated with a bloated bureaucracy.
The new pro-European government has already expressed its support for decentralization, with talks being held on putting the issue to a referendum. However, decentralization is in no way the solution to all of Ukraine’s problems and is unlikely to solve the current crisis in Donbass. Moscow-backed separatists have already rejected Poroshenko’s proposal to hold a referendum for decentralization and announced they would not work with Kiev’s political reform body, the constitutional commission.
But not all hope is lost. Ukraine’s former Minister of Tax and Revenues, Oleksandr Klymenko, who has been a vocal proponent for the decentralization of Ukraine as a means to bring the political process closer to the people, has also argued that these efforts should be coupled with granting Donbass the status of a Special Economic Zone (SEZ). Awarding Donbass SEZ status, would not only stimulate regional economic development but also “see the region become a genuine business hub”, according to Klymenko. Poroshenko has already voiced his readiness to grant Donbass special economic status as its “own regime governing relations with the EU and Russia”.
While decentralization and granting Donbass SEZ status still fall short of the rebels’ demands for federalization, the initiative serves as a good compromise and could prove the ideal solution to restoring Ukrainian and Russian relations and economic ties. After all, much of Ukraine’s industries in the east are still dependent upon Russia as a customer, and that is unlikely to change in the near future.
What is clear, is that Ukraine has a long road ahead in ensuring its long term stability, rooting out corruption, building functioning institutions and becoming a trusted partner of Europe, the US and Russia. Rather than using its efforts to conjure up another storm with Moscow, Kiev needs to focus on what’s important for the country: a peaceful end to the conflict and laying the foundation for structural change across the country. Both decentralization and the SEZ initiative could be the vital means to achieving the end goal of a modern, independent and strong Ukraine.
Caroline Holmund can be found on Twitter at @CarolineHolmund.
The views presented in this article are the author’s own and do not necessarily represent the views of any other organization.
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Ukraine Needs “Decentralization” Not “De-communization”
KIEV UKRAINE - January 20 : The morning after the violent confrontation and anti-government protests on the Hrushevskoho Street on January 20 2014
April 29, 2015
As Russia gears up to celebrate the 70th anniversary of the Great Patriotic War (or as we call in the West, World War II) on May 9, Ukraine’s government seems intent on stirring the pot, with plans to complete the “de-communization” of Ukraine by the Victory Day deadline. The law passed by the Rada on April 9 outlaws communist symbols and elevates controversial anti-Soviet fighters to “national hero” status. What started off as an effort to banish undesired political opponents and bring down statues of Vladimir Lenin and other communist leaders, now appears to have turned into yet another witch-hunt that can only lead to further polarization.
While the Baltic states underwent a similar process of “de-Sovietization” following the fall of communism, including laws banning the use of Soviet symbols and prohibiting communist propaganda, Ukraine was a much more important component of the Soviet Union, with little evidence that the people of Ukraine harbored a similar hatred of the Soviet system as their Baltic counterparts. And with much bigger problems at hand including renewed fighting between government and rebel forces, an economy in free fall and persistent corruption, Ukraine’s people and international lenders may fail to understand why Kiev is “playing […] political games with Moscow” rather than implementing long overdue reforms to get the economy back on track.
A playground for the wealthy and corrupt
Over the past 24 years since its independence, Ukraine has made little progress in tackling “the iron triangle of oligarchic rule, corruption, and financial instability that has left [the country] mired in poverty”. Yanukovich’s leadership left Ukraine in tatters, with corruption eating up some 14% of GDP in the early 2000’s, or in other words approximately $30 billion a year. One of the underlying reasons for this mess is that the country has more often than not been a playground for the wealthy and corrupt. Accumulating their fortunes during the murky privatizations of the 90’s, these oligarchs have come to control large portions of Ukraine’s economy, some even estimating around 70%. What’s more, the Ukrainian oligarchic class has successfully welded itself in the legal framework and political class, often “buying” the loyalty of various ministers and local government officials.
While the IMF has pledged a $40 billion assistance package to Kiev, composed of $17.5 billion in loans and $15-20 billion write offs of previous ones, the Ukrainian government still has the daunting task of implementing economic reforms and battling with the country’s endemic corruption. But the Euromaidan changed the rules of the game, and the new government seems more determined than ever to bring about structural change.
US-born Natalie Jaresko, Ukraine’s Finance Minister, is one of a handful of foreigners brought into senior government positions in Ukraine, aimed at bringing in experienced technocrats “to reform the shambling, kleptocratic system” and help “achieve a clean break with a system long ‘captured’ by billionaire business oligarchs”. For her part, Ms. Jaresko used her recent trip to Washington to underline progress made by the new government, including the unveiling of a new policing system, tax rises for the wealthy, gradual reduction in payroll taxes and the implementation of a simplified tax system. Aivaras Abromavicius, the economy minister, was raised in Lithuania and has lived in Estonia, the US and Russia, and has been charged been deregulating the economy and shrinking the size of central government to crack down on a vast culture of bribery. His most recent piece of legislation cuts the number of procedures for registering a new business, in effect reducing the ability of inspectors to take bribes.
The case for “decentralization”
But will these piecemeal efforts be enough to create a modern and functioning Ukrainian nation on par with other European countries?
While the Russian government and self-proclaimed separatist leaders of the Donetsk and Luhansk republics have advocated for federalization of the region as a key demand to end the conflict, Petro Poroshenko has been quick to dismiss the option as an “infection” being forced upon Ukraine with the aim of creating a fragmented state. Rather, Poroshenko has expressed his support for “decentralization”, which would entail devolution of Kiev’s powers to local authorities and will be a key measure to ensuring Ukraine rids herself of the highly centralized system inherited from the Soviet era.
This system of the central government “micromanaging” local affairs has created a ballooning government bureaucracy, which in the absence of strong instructions and a system of checks and balances, “has nurtured a ruthless oligarch-politician class which has succeeded in exploiting public institutions to achieve private gain”. Decentralization would ensure that local leaders would be tasked with collecting taxes and allocating services based on the needs of their elected district, city, or town, and would mean that Kiev, no longer burdened by micromanaging a country of over 40 million, could cut down its vast administrative bureaucracy. The solution would make for a more effective and transparent form of government, with taxpayers’ money passing through fewer people and therefore limiting the widespread bribery and graft associated with a bloated bureaucracy.
The new pro-European government has already expressed its support for decentralization, with talks being held on putting the issue to a referendum. However, decentralization is in no way the solution to all of Ukraine’s problems and is unlikely to solve the current crisis in Donbass. Moscow-backed separatists have already rejected Poroshenko’s proposal to hold a referendum for decentralization and announced they would not work with Kiev’s political reform body, the constitutional commission.
But not all hope is lost. Ukraine’s former Minister of Tax and Revenues, Oleksandr Klymenko, who has been a vocal proponent for the decentralization of Ukraine as a means to bring the political process closer to the people, has also argued that these efforts should be coupled with granting Donbass the status of a Special Economic Zone (SEZ). Awarding Donbass SEZ status, would not only stimulate regional economic development but also “see the region become a genuine business hub”, according to Klymenko. Poroshenko has already voiced his readiness to grant Donbass special economic status as its “own regime governing relations with the EU and Russia”.
While decentralization and granting Donbass SEZ status still fall short of the rebels’ demands for federalization, the initiative serves as a good compromise and could prove the ideal solution to restoring Ukrainian and Russian relations and economic ties. After all, much of Ukraine’s industries in the east are still dependent upon Russia as a customer, and that is unlikely to change in the near future.
What is clear, is that Ukraine has a long road ahead in ensuring its long term stability, rooting out corruption, building functioning institutions and becoming a trusted partner of Europe, the US and Russia. Rather than using its efforts to conjure up another storm with Moscow, Kiev needs to focus on what’s important for the country: a peaceful end to the conflict and laying the foundation for structural change across the country. Both decentralization and the SEZ initiative could be the vital means to achieving the end goal of a modern, independent and strong Ukraine.
Caroline Holmund can be found on Twitter at @CarolineHolmund.
The views presented in this article are the author’s own and do not necessarily represent the views of any other organization.
